The OECD on February 24 released 47 comments to a discussion draft on OECD international VAT/GST guidelines relating to the place of taxation of business-to-consumer (B2C) supplies of services and intangibles.
The draft, prepared in response to action 1 of the OECD/G20 base erosion and profit shifting (BEPS) plan, sets a common place of taxation for B2C supplies of services and intangibles as location of consumption.
Location of consumption is deemed to be where the service is performed, with the fallback being the customer’s usual residence. The draft provides guidelines on how to determine usual residence.
The draft recommends that countries require nonresident suppliers of B2C services and intangibles to register and remit VAT/GST in the jurisdiction of taxation. Annex 3 of the draft, developed jointly by business and governments, provides for a simplified registration and compliance regime to collect and remit the tax.
Businesses representatives commenting on the draft mostly expressed support for general framework of the guidance as well as the simplified registration and compliance regime.
BIAC was very supportive of the guidance, calling Annex 3 a “hugely significant work.”
“We believe that the Guidelines have great potential to provide the practical framework for the consistent application of VAT/GST across the world, and for example, to address many of the specific concerns raised in relation to the digital economy, wrote BIAC’s Will Morris.
BIAC said that the OECD’s process of engaging business in developing guidelines should be used as a model for other BEPS action items.
Several commentators expressed concern that governments would consider an independent agent established for VAT/GST collection to give rise to a permanent establishment in a jurisdiction.
The National Foreign Trade Council was one of several commentators that said that even though footnote 24 of the guidelines states that a registration for VAT/GST purposes should not constitute a permanent establishment, this statement should be expressly incorporated into BEPS action 7.
The ICAEW was among commentators that argued that it would be appropriate to establish a de minimis turnover threshold so that there would be no requirement to register for VAT in countries where the turnover is low. Such a rule would help business that set up websites with the expectation that most of their business would come from their home country and may not even be aware that a customer resides overseas, ICAEW said.
The OECD also heard from several owners of small businesses in the EU that said that the lack of a minimum sales threshold for VAT was destroying their businesses. Costs to comply with VAT are excessive and many competitors either do not know about the rules or ignore them, causing further competitive disadvantage, they wrote.
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